G.R. No.

167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August
2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial
Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the
Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent
EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial equipment
for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems")
which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the
sales manager of Impact Systems and was impleaded in the court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-
one thousand three hundred thirty-eight (₱91,338.00) pesos. Subsequently, respondents sought to buy from
petitioner one unit of sludge pump valued at ₱250,000.00 with respondents making a down payment of fifty
thousand pesos (₱50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to
deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28
June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of
THREE HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS as payment for the purchase
of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS which receivables the ASSIGNOR is
the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as
shown by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded
to collect from Toledo Power Company the amount of ₱365,135.29 as evidenced by Check Voucher No.
09339prepared by said power company and an official receipt dated 15 August 1995 issued by Impact
Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their
obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996,
petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996,
respondents’ total obligations stood at ₱295,000.00 excluding interests and attorney’s fees.11 Because of
respondents’ failure to abide by said final demand letter, petitioner instituted a complaint for sum of money,
damages, with application for preliminary attachment against herein respondents before the Regional Trial
Court of Cebu City.12

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of preliminary
attachment.13

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations with
respect to the sale transactions entered into by Impact Systems and petitioner between January and April
1995.15 He, however, disputed the total amount of Impact Systems’ indebtedness to petitioner which, according
to him, amounted to only ₱220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in
this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his
transaction with petitioner and the latter was very much aware of this fact. In support of this argument,
petitioner points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor
of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity),
with office located at 46-A del Rosario Street, Cebu City, where he may be served summons and other
processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the
Sales Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary
Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default "for his failure
to answer within the prescribed period despite the opportunity granted"18 but it denied petitioner’s motion for
summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October
2001.19 However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court
of the special and affirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and affirmative defenses and
petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this case. According to the trial court –

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship
entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of
Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H.
Cuizon, made a down payment of ₱50,000.00 that Annex "H" is dated June 30, 1995 or two days after the
execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the
records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of ₱50,000.00. Plaintiff, therefore, cannot say that it
was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its
agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered
into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of
₱50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which,
however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed
Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public
respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17
March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT

RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT
PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he
expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his
powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the
receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment
signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of
Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims
that he should be made personally liable for the obligations of his principal.26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling
the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the
attention of this Court to the fact that respondents are bound not only by their principal and agent relationship
but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy
to defraud petitioner.27

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this
case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere
agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as
it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was
acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in

representation or on behalf of another with the latter’s consent.29 The underlying principle of the
contract of agency is to accomplish results by using the services of others – to do a great variety of things
like selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the
principal or the party for whom another acts and from whom he or she derives the authority to act.31 It
is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal
on matters within the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is
converted into his legal or juridical presence – qui facit per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for himself; (4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as
principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded
his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations
to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his
principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent becomes
personally liable to a third person. The first is when he expressly binds himself to the obligation and the second
is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third
party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the
exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact
Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad
powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a
position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his
principal entrusted to his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he
signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it
received, in full, the payment for Impact Systems’ indebtedness.36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand
pesos (₱50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which
culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28
June 1995.38 The significant amount of time spent on the negotiation for the sale of the sludge pump
underscores Impact Systems’ perseverance to get hold of the said equipment. There is, therefore, no doubt in
our mind that respondent EDWIN’s participation in the Deed of Assignment was "reasonably necessary" or
was required in order for him to protect the business of his principal. Had he not acted in the way he did, the
business of his principal would have been adversely affected and he would have violated his fiduciary relation
with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code
upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other contracting party."39 To reiterate, the first part
of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his
authority. Under this, the agent is completely absolved of any liability. The second part of the said provision
presents the situations when the agent himself becomes liable to a third party when he expressly binds himself
or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it
must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the
law does not say that a third person can recover from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right
nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who
should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as
a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004
and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order
dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation
of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

29 Article 1868 of the Civil Code.

34 Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).

Philippine Products Company v. Primateria Societe Anonyme Pour Le Commerce Exterieur, 122
39

Phil. 698, 702

40De Leon and De Leon, Jr., Comments and Cases on Partnership, Agency, and Trusts (1999
edition), p. 512.
41 Rule 3, §1 of the Revised Rules of Court.